The Monetary Stimulus, Or Start the Printing Presses – Financial crisis

 by Charles Lemos, Wed Mar 18, 2009 at 11:24:39 PM EST

The main policy setting committee of The Federal Reserve, the Federal Open Market Committee (FOMC) voted unanimously (10-0) today to employ the only monetary levers it has left to prop the US and global economy. The FOMC opted to pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities. From their press release, here is how the FOMC views the economy:

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth. In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In its announcement, the Federal Reserve is saying that the United States remains in a severe recession and listed a litany of our continuing woes, job losses, falling equity markets, lost housing wealth and declining exports as a result of the worldwide economic slowdown. The FOMC isn't worried about inflation, rather it continues to worry about declining asset prices.

Now here is what they have opted to do. It's a quantitative easing or a monetary stimulus:

MyDD :: The Monetary Stimulus, Or Start the Printing Presses

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